Due to the advancement of technology, demand for cobalt has risen unexpectedly. This is because cobalt is being used in superalloys and batteries. Cobalt superalloys are highly resistant to heat and corrosion. It is used on a variety of things, but mainly on engines and turbines. Lithium-ion batteries are rechargeable batteries that, when cobalt is included, lasts longer. It is ideal for electric vehicles that have to travel long distances without a gas station anywhere nearby.
However, because of the human rights abuses in the Democratic Republic of Congo (DRC), the world’s largest cobalt supplier, cobalt supply can dwindle. If you still want to invest in cobalt despite this risk, below we explain supply/demand of cobalt and a guide on some options of investing in cobalt.
Supply and Demand: Cobalt
Although there are a handful of countries that participate in cobalt production, the DRC is the world’s biggest supplier of cobalt, with 66,000 MT produced in 2016. This is far ahead of China’s 7,700 MT in 2016 — and China came in second in the world. Canada, with 7,300 MT came in third, while Russia’s 6,200 MT came on Thursday.
But the DRC is currently facing political instability and many times the cobalt mining that occurs in the DRC violates various human rights laws. There are child laborers, unsafe and dangerous work environments, and unfair pay. Some human rights groups are attempting to officially recognize cobalt as a conflict metal. As such, cobalt supply can decline significantly, a risk for those looking to invest in cobalt.
If you are interested in investing in cobalt, besides supply it is also important to consider demand as well. As mentioned above, there are many uses of cobalt, but recently demand has spiked due to new technology — namely lithium-ion batteries.
Many experts agree that the growth of demand in cobalt will be largely connected to the growth of lithium-ion battery. Caspar Rawles, an analyst at Benchmark Minerals Intelligence, suggests that battery demand for cobalt will go from 50,000 tons in 2016 to 80,000 tons by the end of 2020.
“From a cobalt producer’s perspective supply needs to keep up with, or be close to, expanded demand,” says Rawles.
Due to the possibility of a low supply rate and an increase in demand, the cobalt market could go into deficit, making investing in cobalt risky. Although there is no specific number, CRU Senior Consultant Edward Spencer has predicted that “the refined market will fall into a 3,000-ton deficit [in 2017] following seven years of overcapacity and oversupply.”
Cobalt Futures and Cobalt Stocks
As cobalt prices grow, many investors are investing in cobalt right now in order to benefit from the price increases. Because one cannot obtain a physical cobalt, there are only two ways to invest in the metal: through futures and/or stocks.
Cobalt futures are measured in US dollars per ton and can be bought on the London Metal Exchange under the ticker (CO). Investors can make bets on the metal over different time periods, as the cobalt futures can range over 15 months.
Besides cobalt futures, one can invest in cobalt stocks by trading the stocks of cobalt-mining companies. It is highly suggested for the investor to look to copper-and-nickel-focused companies because cobalt is a byproduct of copper and nickel mines.
When it comes to investing in cobalt stocks, Rawles recommends investors look at companies that are mining cobalt look at copper – and nickel- focused companies.
“I think the key for smaller companies is to be targeting value-added products further downstream than simply a concentrate, such as cobalt sulfate, targeting the battery supply chain,” Rawles added.
As many investors are not familiar with futures, it is recommended for them to start investing in cobalt through stocks. In recent overviews of TSX-listed and TSXV-listed cobalt companies that have seen year-to-date gains include both a mix of large companies and smaller companies looking to break into the cobalt industry.
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